NZ dollar rises as commodity prices firm in New Year

-By Paul Macbeth

Monday 5th January 2009

The New Zealand dollar gained as prices of commodities strengthened, making the currencies of producer nations such as Australia and New Zealand more attractive.

The pledge to invest in infrastructure by U.S. President-elect Barack Obama has driven up the value of metals like nickel, tin and aluminium, while the price of oil gained on rising tensions between Israel and Palestine in the Gaza Strip. About 49% of New Zealand's NZ$42 billion export market for the 12 months to October was made up of milk, meat, oil, timber and aluminium.

The nation's 5% benchmark interest rate is also drawing investors as central banks worldwide cut rates.

"Higher commodity prices dragged the New Zealand dollar up," said Tim Kelleher, corporate risk manager at ASB Bank. "Things are looking rosier in the New Year."

The kiwi rose to 58.90 U.S. cents from 57.99 cents on Friday, and it was up to 54.07 yen from 52.85 yen. It increased to 42.30 euro cents from 41.51 cents on Friday, and was down to 82.70 Australian cents from 83.12 cents.

The currency tumbled 25% in 2008 in its worst performance since 1984. The kiwi was floated in 1985.

Kelleher said the kiwi may trade between 58.50 U.S. cents and 59.25 cents today as it makes a "slow grind up" towards the 60 cent mark.

He predicts the kiwi will remain attractive until the "end of summer" as New Zealand's relatively high yields encourage risk appetite. The Reserve Bank reviews the official cash rate on Jan. 29, and Kelleher said there is no guarantee that Governor Alan Bollard will continue to cut rates. Bollard has slashed 325 basis points from the OCR after embarking on the steepest easing of monetary policy since the inception of the benchmark rate in 1999.

In Japan, central bank Governor Masaaki Shirakawa has announced the Bank of Japan is considering a number of measures to restrict the yen's rise, while the Bank of England will meet on Thursday, and is predicted to cut its benchmark rate 50 basis points to 1.5% as U.K. policy makers move to pull their economy out of recession.

(Businesswire.co.nz)

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